JERUSALEM, August 6, 2008 (AFP) - Israel said on Wednesday that it will release Palestinian prisoners later this month as a 'gesture of goodwill' to president Mahmud Abbas as part of US-backed peace talks.

'Israel will be releasing Palestinian prisoners towards the end of August as a gesture of goodwill towards the Palestinians in response to a request by Palestinian president Mahmud Abbas,' government spokesman Mark Regev said.

'We hope this gesture will help the peace process,' the spokesman for Israeli Prime Minister Ehud Olmert told reporters after the latest meeting between the two leaders.

A senior Israeli official said the release was scheduled for August 25 and followed a request made by Abbas when the two leaders met in Paris in July.

Wednesday's meeting was the first between the two leaders since Olmert's surprise announcement one week ago that he would step down as premier after a Kadima party primary on September 17 amid corruption allegations.

Olmert's imminent departure has cast a shadow over the peace efforts relaunched at a conference in the United States in November at which both sides pledged to try to reach a full peace agreement by the end of the year.

Regev insisted however that 'this peace process will continue. All sides are committed to the process.'

Senior Palestinian negotiator Saeb Erakat had earlier said that Abbas would discuss the release of several prominent and long-serving Palestinian prisoners, including Marwan Barghuti, a popular leader in Abbas's Fatah party seen as a leading contender to succeed him.

Barghuti, a West Bank leader considered to have masterminded the second Palestinian uprising in 2000, was jailed in 2004 and is serving five life sentences for his role in deadly attacks.

Abbas also wants Israel to release prominent leaders from other factions, including parliament speaker Aziz Dweik from the Islamist Hamas movement, and Ahmed Saadat, the leader of the leftist Popular Front for the Liberation of Palestine (PFLP), Erakat said.

Olmert and Abbas have met roughly twice a month since talks were formally revived at November's conference.

The future of the talks, which have made little visible progress since the relaunch, has grown murkier in the wake of Olmert's announcement.

The premier has been the target of six corruption probes and had for months faced mounting calls to resign from across the political spectrum, including from crucial coalition allies.

Foreign Minister Tzipi Livni, who has been heading the Israeli negotiating team, is running neck and neck in opinion polls for the Kadima leadership with Transport Minister Shaul Mofaz, a hawkish former general seen as less invested in the peace talks.

Announcing his candidacy at a Jerusalem rally on Tuesday night, Mofaz vowed to 'preserve united Jerusalem as Israel's eternal capital.'

The fate of the Holy City is one of the most contentious issues in the US-backed talks, with the Palestinians demanding Arab east Jerusalem, seized by Israel in the 1967 war, as their future capital.

But in a subsequent interview with Israel's left-leaning Haaretz newspaper Mofaz vowed to advance peace talks with the Palestinians should he become prime minister, saying he would personally supervise them.

'It won't happen in two days and maybe not in a year, but there will be results,' he told the paper.